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A start up running as a Private Limited Company has to follow a number of compliances as laid down by various statutes and other regulatory bodies. To function smoothly in the market, it is essential for start ups to be compliant with the rules, regulations and laws set forth by government. A start up can fulfil its compliance requirement either by establishing a legal department within the Company or by outsourcing it to experts in the field.

Legal Aspects and Compliances for start up of a Private Limited Company are as below:

  • Compliance under Labour Laws: Some of the major laws to be followed are:
  1. The Employees State Insurance Act, 1948
  2. Employees Provident Fund Scheme, 1952
  3. Maternity Benefit Act, 1961
  4. Sexual Harassment of Women at Workplace(Prevention, Prohibition, and Redressal) Act, 2013
  5. Payment of Wages Act, 1936 to regulate basic wages of the labour force.
  6. Factories Act, 1948
  • Taxation based Compliances:
  1. Income Tax Act, 1961: Registration of establishment under Income Tax Act, Filing Income Tax Returns, Tax Audit reports, TDS Returns
  2. GST Act, 2017: Registration of establishment under GST Act, filing of monthly, quarterly and annual returns.

Apart from legal compliance start ups can also avail various rebates available to new companies in India:

  1. Three Year Tax Holiday in 7 years: U/s 80IAC of the Income Tax Act, any start up that is established after 1st April, 2016 can avail 100% tax rebate on its profits for 3 years within a block of 7 years. This is not applicable if the Company’s annual turnover is over Rs. 100 Crore.
  2. Tax Exemption on Long Term Capital Gains: U/s 54EE of the Income Tax Act, start ups are exempted from LTCG Tax. However, this is only applicable if the capital gains that have been invested in are a part of the fund notified by the government of India within 6 months from the date of the asset’s actual transfer.
  • Company Law based compliances: There are certain mandatory compliances that a start-up needs to adhere. ROC under the Ministry of Corporate Affairs looks after the compliances of Companies. Every Private Ltd. Company irrespective of its size has to file returns and documents to comply with the legal requirements mentioned in the Companies Act, 2013. Failing to comply with the rules & guidelines laid therein can attract a hefty penalty on the Company and their stakeholders. Below are the compliances:
  1. Filing of ADT -1: First Auditor should be appointed within 30 days of the Company’s incorporation in the first board meeting. However, the shareholders shall confirm the appointment in the first AGM of the Company and file form ADT -1. In the subsequent board meeting , auditors could be appointed for 5 years and Form ADT 1 needs to be filed for a 5-year appointment. Every year in AGM shareholders will ratify the appointment of auditor but there is no need to file ADT 1.
  2. Scheduling Board Meetings: The first Board Meeting of the Board of Directors should take place within 30 days of the incorporation of the Company. Every Company shall hold a minimum number of 4 meetings of its Board of Directors every year in such a manner that maximum gap between 2 meetings should not be more than 120 days. The Company should hold at least 1 Board meeting every quarter of the calendar year.
  3. Filing of INC 20A: Every Company incorporated on or after 02nd November, 2018 and having share capital is required to file e-form INC-20A with their respective Registrar of companies within 180 days from date of incorporation of Company.
  4. Scheduling of Annual General Meeting (AGM): First AGM should be held within 9 months from the date of closing of the first financial year. Thereafter, AGM is to be held every year within 6 months of the end of the financial year and the maximum gap between 2 AGM should not be more than 15 months.
  5. Filing of DIR -8: Every Director of the Company in each Financial Year will file with the Company disclosure and non-disqualification.
  6. Filing of DIR 12: This form is filed to notify the Registrar of Companies about the details relating to the Change/ Appointment /Resignation of Directors and other officials.
  7. Filing of MBP 1: Every Director of the Company in First Meeting of the Board of Directors in each Financial Year will disclose his/her interest in all the Companies or Firms or Body Corporate or any Association of Individuals by giving a notice to the Board of Directors of the Company.
  8. Filing of MGT 7: Every Company will file this e-form also known as Annual Return within 60 days of holding Annual General Meeting. Annual Return will be for the period 1st April to 31st
  9. Filing of AOC 4: Form AOC 4 is used for filing the financial statements for each financial year with the ROC. The Financial Statements include Balance Sheet, Statement of Profit & Loss Account, Directors Report, Auditors Report, Cash Flow Statement and Notice of AGM.
  10. Directors Report: Companies must file a financial document called the Directors’ Report at the end of the financial year. The Directors’ Report is the report prepared by the Board of Directors of the Company and should be attached to every financial statement. It outlines the financial state of the Company.
  11. Circulation of Financial Statement: Company will send to the members of the Company, the approved Financial Statement (including consolidated financial statement), Cash Flow Statement, Directors Report and Auditors Report at least 21 clear days before the AGM.
  12. Compulsory maintenance of certain registers:
  • Register of Members,
  • Register of Directors/KMP,
  • Register of Loan, Contract and Arrangement,
  • Register of Related Party Transactions. etc.
  • Minute books for the Board meetings, and of the shareholders meetings,
  • Forms filed with ROC, Financial Statements and Annual Reports.
  • Register of Investment held not in company’s name
  • Register of Sweat Equity shares / ESOPS etc.
  • Register of duplicate share certificate.
  • Books of Accounts or Financial Statements in compliance with section 44aa
  • Register of Directors Attendance at Board Meetings or Committee Meetings.

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